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Client Alert: The GENIUS Act: A Compliance Roadmap for Stablecoin Issuers in 2025

With Congress poised to regulate stablecoins, Whiteford offers a guide to navigating the GENIUS Act in a new era of crypto oversight

A Pivotal Moment for Stablecoins

In April 2025, the Senate Banking Committee voted to advance the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, a landmark bill introduced by Senator Bill Hagerty to regulate the $180 billion stablecoin market. With bipartisan support and a full Senate vote expected by Q3 2025, the Act signals the end of regulatory ambiguity for digital assets like USDC, Tether, and Binance USD. Coupled with broader cryptocurrency market reforms under discussion, these changes are reshaping the landscape for issuers, DeFi platforms, and investors.

The 2022 Terra/LUNA collapse, which erased $40 billion in value, and the Coinbase data breach, exposing millions of users, have underscored the need for regulatory oversight. Here’s what the GENIUS Act means for your business and how to stay compliant in 2025.
 

Stablecoin Market Size (2020–2025)

Year	Market Size (Billions USD)
2020	5.9
2021	27.3
2022	81.4
2023	125.7
2024	153.2
2025	200.0

 
What the GENIUS Act Entails

The GENIUS Act creates a federal framework to ensure stablecoin stability and consumer protection, with enforcement expected to begin in Q3 2026. Key provisions include:
 

• 1:1 Reserve Requirements: Issuers must back stablecoins with high-quality liquid assets (e.g., short-dated U.S. Treasuries or FDIC-insured deposits), verified through monthly independent audits.
• Federal Licensing: All issuers must obtain a license from the Department of the Treasury. Smaller issuers (market cap = $10 billion) can opt for state oversight if aligned with federal standards, offering flexibility for emerging players. Issuers would be subject to the Bank Secrecy Act, and the Financial Crimes Enforcement Network would be required to write tailored anti-money laundering rules.
• Ban on Algorithmic Stablecoins: Non-fiat-backed models, like TerraUSD, are prohibited to prevent market-driven collapses.
• Redemption Guarantees: Users can convert stablecoins to U.S. dollars on demand, with issuers liable for delays or insolvency, which would prioritize coin holders in bankruptcy.

These rules aim to foster trust but impose significant compliance costs—estimated at $2–5 million annually for mid-sized issuers—posing challenges for startups and DeFi protocols. The bill would also permit banks to custody stablecoins and reserve assets, use blockchains, and issue tokenized deposits.

Legal and Business Implications

The GENIUS Act intersects with existing regulations and proposed crypto market reforms, creating both risks and opportunities:

1. Navigating Regulatory Overlap: Stablecoin issuers face scrutiny from multiple agencies:
   • SEC: Tokens linked to securities (e.g., tokenized bonds) may require registration.
   • CFTC: Stablecoins used in derivatives markets fall under commodities rules.
   • FinCEN: AML/KYC compliance is mandatory, with 2024’s $9.3 billion in crypto fraud losses amplifying enforcement.
   • Legal teams need to leverage experience in SEC, CFTC, and FinCEN requirements to conduct comprehensive compliance reviews and develop tailored roadmaps, ensuring stablecoin issuers efficiently navigate overlapping regulations while minimizing operational risks.
2. Litigation Risks on the Horizon: The Act’s scope may trigger legal challenges, including:
   • Preemption Disputes: Conflicts between federal and state regulators, as seen in New York’s BitLicense battles.
   • Due Process Claims: Existing issuers may argue that retroactive penalties violate constitutional protections.
   • Legal teams should be prepared to defend complex financial regulations, proactively craft preemptive defense strategies and advocate before regulators, equipping clients to counter potential disputes.
3. Cross-Border Complexities: Foreign issuers serving U.S. users (e.g., Binance) must comply with or implement geofencing, which may disrupt global liquidity pools. Foreign issuers should proactively adopt compliance measures, such as enhanced AML/KYC protocols and U.S.-aligned reserve audits, to avoid penalties and maintain access to the U.S. market. A global network of regulatory experts can help design bespoke legal frameworks – spanning jurisdictional optimization, AML/KYC compliance, and cross-border licensing – to empower foreign issuers to seamlessly meet U.S. regulatory demands and sustain their worldwide market leadership.
4. Unlocking Institutional Capital: Clear rules could attract institutional investors, who avoided crypto after 2024’s $9.3 billion in fraud losses and market volatility. Compliant stablecoin issuers may gain a first-mover advantage, as seen with Circle’s 2024 partnership with BlackRock, which positioned USDC as a preferred stablecoin for institutional portfolios. Similarly, Coinbase’s 2018 launch of Coinbase Custody, one of the first institutional-grade crypto custody services, secured $7 billion in assets by 2020, establishing it as a trusted gateway for hedge funds and pension funds. Grayscale’s Bitcoin Trust (GBTC), launched in 2013 as the first Bitcoin investment vehicle, amassed $10 billion in assets by 2021, setting the standard for crypto investment products and capturing early institutional interest. Issuers that align with the GENIUS Act’s requirements early can similarly lead the market, attracting capital from banks, asset managers, and pension funds. Issuers should partner with attorneys to develop GENIUS Act-compliant structures and investor-ready compliance programs, positioning clients to attract institutional capital from banks, asset managers, and pension funds as trusted market leaders.

Actionable Steps to Prepare

To thrive under the GENIUS Act, stablecoin issuers and platforms should act now:
 

• Conduct a Compliance Audit: Review reserves, redemption processes, and AML/KYC protocols to meet federal standards.
• Develop a Licensing Roadmap: Prepare for Treasury applications, opening in Q3 2026, or explore state-level options for smaller issuers.
• Update User Agreements: Align terms of service with redemption and disclosure rules to mitigate litigation risks.
• Monitor Broader Reforms: Track the proposed Crypto Market Integrity Act, which could mandate exchange licensing by 2027, impacting DeFi and custodial platforms.
• Engage Experienced Counsel: Partner with an experienced legal team to navigate licensing, compliance, and potential enforcement actions.

 
Looking Ahead: A New Era for Crypto

The GENIUS Act is a cornerstone of Congress’s push for comprehensive crypto market reform, positioning the U.S. to rival the EU’s MiCA framework. While challenges lie ahead—compliance costs, litigation, and global coordination—the Act offers a path to stability and growth. Businesses that act proactively will lead the $2 trillion crypto market into its next chapter.
 

GENIUS Act Legislative and Regulatory Timeline (2024-2026)

Date	Milestone
October 2024	Discussion draft released
February 4, 2025	GENIUS Act introduced in Senate
March 13, 2025	Senate Banking Committee approval (18-6 vote)
May 19, 2025	Senate procedural vote (66-32 vote)
July 2025	Full Senate passage (estimated)
Q4 2025	Enactment after House reconciliation (estimated)
Q3 2026	Licensing applications open and enforcement begins (estimated)

 
Stablecoin issuers, DeFi platforms, and investors are encouraged to assess their compliance strategies now to align with the GENIUS Act’s impending requirements. For guidance on navigating licensing, audits, or cross-border compliance, please reach out to Whiteford’s attorneys.